4 Ways VA Loans Help Veterans Afford Their Dream Homes
By Anna Bulach
Veterans, active-duty servicemembers and other military personnel can make homeownership a reality with a VA loan. While VA loans are issued by private mortgage lenders just like conventional mortgages, they’re backed by the Department of Veterans Affairs. This backing allows VA lenders to offer additional benefits that wouldn’t be available otherwise.
These benefits include reduced interest rates, no mortgage insurance premiums and lower or financed closing costs. Let’s take a look at some of the ways that VA loans can help veterans afford the home of their dreams.
1. Down Payments Are Rarely Required
One of the biggest hurdles to purchasing a home is the required down payment. VA loans, unlike conventional or FHA loans, usually don’t require down payments. This is great news, as most lenders typically require a 5% – 15% down payment for conventional mortgages.
On a $250,000 home, a 5% down payment would require having $12,500 cash on hand. Even an FHA loan with a 3.5% down payment would require several thousand dollars in cash up front.
VA loans work a little bit differently. As long as you don’t borrow more than the VA-specific county maximum loan (most counties’ maximum loan is currently about $484,000), you can take possession of a home without a down payment.
Keep in mind that if you make an offer on a home for more than it’s worth, your lender may require a down payment to protect themselves in the event of default.
2. Credit Requirements Are Less Strict
When you apply for a conventional mortgage, your credit history will be taken into account by the lender. Since higher credit scores are considered less risky, you’ll likely receive a lower interest rate with a credit score of more than 700 as opposed to a credit score in the 500s.
If you opt for a VA home loan, there won’t be any minimum credit score requirements. However, your specific lender may have their own credit score requirements. The good news is these are usually not as stringent as the requirements of other types of home loans.
Credit score requirements for the different types of homes are as follows:
- VA Loans:Varies by lender, but typically in the low to mid-600s. At Quicken Loans®the minimum credit score necessary for approval is 620.
- FHA Loans: Varies by lender, but a minimum credit score of 620 is usually required.
- USDA Loans:Varies by lender, but a minimum credit score of 640 is usually necessary for approval.
- Conventional Loans: Varies by lender, but having a credit score below 740 will usually increase fees and interest rates.
Before you apply for a mortgage with any lender, it’s a good idea to review your credit reports, check your credit score and look for ways to boost your credit.
3. Veterans Don’t Have To Choose Between A Loan And A Grant
If you’re a veteran with a service-related disability, you can apply for a housing grant from the VA so you can build, remodel or adapt an existing home to fit your needs. You won’t have to choose between a VA loan or a VA grant because you can have both.
The two grant programs available to disabled veterans are the Specially Adapted Housing (SAH) grant and the Special Housing Adaptation (SHA) grant. The SAH and SHA grant programs can help veterans with certain disabilities in the following ways:
- Construction of a specially adapted home on land already owned or land that’s going to be bought
- Remodeling of an existing home to make it more suitable
- Adapting an existing home that’s already owned or a home that’s going to be bought
- Purchasing of a home that’s already adapted
4. VA Loan Benefits Can Be Reused
The VA loan program is not a one-and-done program, nor is it only available to first-time home buyers. VA loans are a lifelong benefit for people who have served our country in the armed forces.
If you’d like to secure another VA loan, a lender will review your VA loan entitlement. This entitlement is a specific amount of money that the VA pledges to repay a lender if you as the borrower default on a loan.
You should have no issues getting approved for a second VA loan as long as your entitlement isn’t currently pledged to another VA loan and you’ve never defaulted on a loan.
VA home loans are one of the benefits afforded to veterans who have served our country. While the program offers many advantages over conventional and FHA loans, it’s important to compare your loan options and select the ideal one for your financial situation and lifestyle needs.
If you’re a veteran, you can take advantage of your military benefits and apply for a VA loan with no down payment through Quicken Loans.